Assessing The Loss Of A Negligent Survey

In this blog we consider the recent High Court decision in the case of Moore and another v National WestminsterBank, which provides further guidance on how to assess the loss caused by a negligent surveyor.

A Typical Situation

A potential buyer instructs a surveyor to carry out a survey on a property to highlight any defects.

Upon receiving the surveyor’s report confirming the property is in good condition, the buyer relies on the report and purchases the property.

However after purchasing the property, the buyer discovers that the property suffers from defects or damage that was not disclosed in the surveyor’s report.

How The Courts Have Been Assessing Loss

Up until now the guide for assessing loss was found in the Court of Appeal decision in the case of Philips v Ward, in which a buyer had relied upon a negligent survey to purchase a property. The buyer subsequently discovered an infestation of beetles that would cost £7,000 to rectify.

The Court of Appeal decided the loss in Philips v Ward was not £7,000 but actually £4,000, as had the seller been aware of the beetle infestation at the time of the sale, the diminution in the value of the property would only have been £4,000.

Phillips v Ward has therefore been the authority for assessing loss based on a negligent survey i.e. loss was to be calculated at the date of purchase rather than the date the defects were discovered.

Moore And Another V National Westminster Bank

In this recent case, Mr Moore and Ms Hegelund (‘M&H’) applied for a mortgage with National Westminster Bank (‘Natwest’) to purchase a buy to let property, and in their mortgage application they requested for a Home Buyers Report to be carried out.

Natwest approved the mortgage and believing that Natwest had received a favorable Home Buyers Report, M&H proceeded with the purchase.

However, after purchasing the property, M&H discovered extensive defects at the property which would cost £115,000 to rectify, which was more than the purchase price. It turned out that Natwest, due to an error, had not undertaken the Home Buyers Report.

M&H sued Natwest and the County Court ruled in favor of M&H, on the basis that Natwest had breached their contract by not undertaking the Home Buyers Report. The County Court therefore had to assess the loss.

Natwest argued that the assessment of loss should be based on the judgment in Philips v Ward, i.e. the loss should be the diminution in value of the property. Natwest’s expert stated the diminution in value of the property was only £15,000.

M&H argued that their loss was the £115,000 repair cost, as Natwest had not obtained a survey which M&H relied on (as in the case of Philips v Ward), and that they would not have purchased the property had they known about the defects. M&H’s expert stated he was unable to assess the diminution in value of the property due to the state of the defects.

The County Court decided that M&H would be under compensated if they agreed with Natwest that the loss was only £15,000 and the diminution in value in this case would be too speculative. The County Court also disagreed with Natwest’s argument that Philips v Ward applied, given there was no negligent survey in this case. The County Court therefore found in favor of M&H, awarding them damages of £115,000.

Natwest appealed the County Court’s decision on the assessment of loss to the High Court.

The High Court’s Decision

At the High Court, Mr Justice Birss disagreed with the County Court’s decision that Philips v Ward should not be considered for assessing loss, even if M&H would not have purchased the property had they received a report, as there was still a value in the property to be considered.

However, Mr Justice Birss decided there was flexibility when considering the diminution in the value of a property and as there has been no legal ruling confirming that an expert could not rely on the full repair cost to assess the loss, the High Court decided the County Court were correct in their decision to award M&H damages of £115,000.

Natwest therefore lost their appeal.

Conclusion

Philips v Ward therefore remains good law for assessing loss in these circumstances based on the diminution in the value of a property, however if defendants do not provide a satisfactory alternative for assessing the diminution in value, the court is entitled to consider the cost of repair when assessing loss.